# Proposal Authors

@niko: ex-Maker

@czepluch: ex brainbot

# Summary

- This proposal aims to provide initial lending liquidity for SHU/stablecoin pairs on [Ajna](http://ajna.finance) by rewarding depositors of lending liquidity in stablecoins with SHU tokens.
- By allowing users to borrow stablecoins using SHU as collateral, it enhances the overall liquidity of SHU and enables users who hold SHU to access liquidity without reducing their exposure to SHU. This can help prevent excessive selling of SHU and facilitate leveraged trading of SHU.
- Ajna is a permissionless lending protocol created by ex-Maker contributors, that enables anyone to create lending pools of any token pair. While setting up the pool can be done by anyone, a rewards program to bootstrap liquidity will require some management.
- 1,000,000 (1M) SHU tokens will be distributed as rewards over 10 weeks across different lending pools.
- Stablecoin depositors would in addition to SHU tokens earn interest based on the pool balance on Ajna.

# Motivation

The liquidity of a token contributes to its usefulness and price stability, which is vital for the sustainability of the token and its role in securing governance. We’ve seen the rise of liquidity mining by rewarding LPing on Uniswap. A missing piece is liquidity mining for lending protocols. Lending and debt markets play a crucial role in the overall token liquidity as they allow holders of SHU to access liquidity without the need to sell, thereby mitigating some sell pressure. Additionally, these markets enable leveraged trading for SHU and provide liquidity on demand, offering more flexibility and stability in the market. This will enable a healthy market of SHU to develop.

Ajna is a permissionless lending protocol that enables anyone to create lending pools. It is sort of the “Uniswap v3” of lending, as you as a lender decides which collateral token you wish to lend quote tokens against, and the collateralization ratio that you are willing to lend at. This effectively means that lenders are deciding at which limit price they would be comfortable purchasing the collateral token at. This enables permissionless lending market creation without the need for price oracles or governance process.

Ajna lending pools can be accessed using DeFi industry leaders [Summer.fi](http://summer.fi).

The goal would be to bootstrap SHU/DAI and SHU/USDC pools on Ajna to enable borrowing DAI and USDC using SHU as collateral. We are open to hearing community input on which other pools might be interesting to SHU holders, e.g. SHU/ETH for longing against ETH. In order to bootstrap the necessary stablecoin liquidity, we propose rewarding stablecoin lenders in SHU tokens. Ajna are doing this themselves with great success.

# Specification

## Implementation

In order to setup the incentivized Ajna lending pools the following must be done:

**Ajna Pool Deployment**

The specific SHU/Stablecoin pools must be deployed on Ajna. This is permissionless and can be done by anyone using a frontend like Summer.fi, and does not require any new code.

**Pool Rewards**

In order to incentivize the specific stablecoin pools, the following open source tool can be used to calculate and distribute the correct amount of SHU rewards to LPs. This tool is already being used to distribute Ajna rewards and can be used out of the box.

[https://github.com/OasisDEX/summer-rewards-redeemer/](https://github.com/OasisDEX/summer-rewards-redeemer/?tab=readme-ov-file)

The rewards are earned per block your liquidity is actively being lent out, and distributed once per week. While the rewards contract has been in use for quite a while with no issue, we suggest the SHU rewards would be distributed to the rewards contract on an ongoing basis from a multisig controlled by trusted community members to further lower the security risk. If the DAO is more comfortable removing trust in this multisig, the entire amount can be transferred to the rewards contract instead, but it carries some risk.

**Rewards UI**

A rewards UI to allow users to easily monitor and claim rewards must be implemented. You can claim your reward directly through Etherscan, but in order to enhance the user experience a simple rewards UI that showcases how much SHU you have earned, and how much is claimable should be implemented. Such a UI would be simple and quick to be implemented using existing Web3 UI frameworks.

**Community Controlled Multisig**

We propose that a Safe wallet is setup with trusted community signers to custody the 1M SHU and manage the ongoing deployment of the SHU tokens are sent to the rewards contract.

## **Security Considerations**

**Ajna Protocol**

Ajna v1 was first deployed in June 2023, but due to a [potential griefing exploit](https://twitter.com/ajnafi/status/1697648106475598192) the v1 system was wound down in Sept 2023. The system was never exploited in practice.

A v2 with a fix and other smaller improvements was deployed in January 2024.

The protocol was built by ex-MakerDAO devs, and been extensively audited (10 audits in total): https://github.com/ajna-finance/audits/?tab=readme-ov-file#ajna-protocol-security-audits

The protocol has as of today just shy of 30M TVL (https://info.ajna.finance/).

**Rewards System**

The rewards system has been deployed since January 11. We are not sure if the code has been audited, but it’s been in production for over 2 months with no issues. It is being used by [Summer.fi](http://Summer.fi), who has a track record of taking security seriously, with no major exploits. In order to mitigate potential security risks, only the weekly rewards should be deposited into this contract to limit any issues.

## **Timeline**

- Ajna pool deployment: Immediately
- Pool rewards: 1 week
- Rewards UI: 2 weeks

Total timeline: 2 weeks

## Budget Overview

- 1M SHU tokens for LP user rewards over 10 weeks.
- If the community wishes to continue the programme, a new allocation can be granted. Once the setup is up and running, it’s easy to simply top up the rewards programme.
- A one time grant of 100K SHU tokens for setting up and managing the rewards programme, and building the rewards user interface.
- This will be deposited into a vesting contract that vests over 1 year.
- This covers the man hours, gas and development costs for setting up the rewards.
- Total request: 1.1M SHU

# Rationale

The rationale behind selecting this solution is its low cost, battle tested off the shelf contracts, quick time to market, and permissionless nature of the solution, that enables the ShutterDAO to efficiently establish liquidity for SHU.

While other lending protocols exist, they often require oracles and extensive governance processes to approve new collateral tokens. This process is often slow, and often it is difficult to build a secure oracle for a low liquidity token. Ajna with its unique implementation offers a permissionless lending market for any token that can be deployed immediately with no external actors or requirements.

# Next Steps

Immediate action items, should this proposal be accepted are outlined belowed. The responsible party is outlined in parenthesis:

- Setup a multisig wallet with trusted community members as signers (Authors)
- Setup grantee vesting contracts (Authors)
- Deposit 1M SHU into the multisig contract (ShutterDAO)
- Deposit 100k SHU into grantee vesting contracts (ShutterDAO)
- Deploy Ajna SHU/DAI and SHU/USDC pools (Authors)
- Deploy rewards system (Authors)
- Build and implement rewards UI (Authors)
- Start offering rewards 2 weeks from proposal acceptance (Authors + Community Multisig)